Start with U.S. stocks
Any portfolio should hold a helping of stocks of large U.S. companies as its base. Behemoths such as ExxonMobil and Johnson & Johnson grow in line with the economy (sometimes faster) and often boost payouts. (Check out some top picks with these 6 Stocks Poised for Big Gains).
Shop the bargain bin
Investing in companies that are cheap relative to their profits or other fundamental measures has been a winning strategy over the long run.
Squeeze in small caps
Stocks of small companies, or those with a market capitalization of $2 billion or less, beat stocks of large companies over time. (Find out more about the tiniest of the tiny with Micro Stocks’ Big Payoff.)
Take a global view
Many large, world-class companies, such as BP, Nestle and Roche, are based in developed foreign nations. (See Global Funds to Fight the Gloom.)
Buy small caps abroad
Small foreign companies can grow faster than large overseas concerns. Plus, small-cap foreign stocks move less in sync with U.S. stocks than shares of large foreign outfits do.
Spice it up
Over the past ten years, stocks from emerging markets gained 10.4% annualized, crushing returns from developed-market stocks but with 57% more volatility than the U.S. stock market. (Learn more from Emerging Markets Hit the Big Time.)
Hold some property
Real estate investment trusts that own shopping malls, offices and other such properties can generate stock-like returns but may not move in lock step with your other stocks. (Read more on REITs with Growing risk in REITs.)
Think safety first
Bonds backed by Uncle Sam provide ballast when your portfolio is sailing through a storm. U.S. Treasuries and agency-backed mortgages fall into this category. (Find out more about Treasuries and Agency Bonds with Jeff Kosnett's Cash in Hand column.)
Boost your yield by adding bonds issued by highly rated companies. (Join us on The Hunt for Dividends.)
Help a local government
Although finances of many states and municipalities look shaky, issuers of tax-free municipal bonds rarely default. And if income-tax rates rise, tax-free income will become increasingly valuable.
Lend money overseas
The debt of developed foreign governments is almost as safe as U.S. government debt and can offer higher interest rates and currency diversification.
Protect against inflation
Both commodities and Treasury inflation-protected securities (TIPS) offer defense against rising prices. You get a dose of both in the Pimco CommodityRealReturn Strategy fund (PCRDX).
Cash in on mergers
Merger arbitrage involves buying the stock of a takeover target after a deal is disclosed, in a bet that the deal will reach completion. Our favorite merger fund even made money during the 2007-09 bear market.
Keep some cash
Money-market funds, Treasury bills and the like are paying next to nothing, but you should always have some on hand to meet near-term expenses.